The banks and Schilling, the former Boston Red Sox pitcher
who founded 38 Studios, didn’t disclose to the state’s economic
development organization the negative information about the
company’s financial projections and business plan, according to
a filing today in Rhode Island Superior Court.

“38 Studios failed because of risks that had not been
disclosed to the EDC board, but were or should have been known
by” the defendants, the state said in the complaint.

The EDC board in 2010 approved the issuance of $75 million
in bonds to finance a loan to allow 38 Studios to move to
Providence, Rhode Island, from Massachusetts and complete a
multiplayer online game called Copernicus. The company hadn’t
yet published a video game, according to the complaint.

The board’s advisers mentioned the risks and the board
concluded that the “merits and benefits of the transaction were
sufficient” to justify taking them, the EDC said. Those risks
included the company’s lack of a track record and its ability to
finish developing the game on time and within its budget,
according to the complaint.

Placement Agents

“Even with the loan from the EDC, 38 Studios was
undercapitalized by many millions of dollars and would not have
nearly enough money to relocate to Rhode Island and complete
Copernicus,” according to the complaint.

Wells Fargo and Barclays were the placement agents for the
$75 million loan.

“We are reviewing this matter and have no comment at this
time,” Dana Obrist, a spokeswoman for San Francisco-based Wells
Fargo, said in an e-mail. Mark Lane, a spokesman for London-
based Barclays, declined to comment.

Katie Leighton, a spokeswoman for Schilling, didn’t respond
to messages seeking comment on the suit.

“For your tax dollars to be squandered is unacceptable,”
Rhode Island Governor Lincoln Chafee said in a statement today.
“The board’s legal action was taken to rectify a grave
injustice put upon the people of Rhode Island.”

Among those also sued were First Southwest Co., the EDC’s
financial adviser for the loan; Starr Indemnity & Liability Co.,
an insurer for 38 Studios; Adler Pollock & Sheehan, the law firm
that represented the board; Keith Stokes, the EDC’s former
executive director; and other officers and directors of 38
Studios.

The EDC and Bank of New York Mellon Trust Co. won court
approval in August to take possession of 38 Studios’ assets.

The bankruptcy case is In re 38 Studios LLC, 12-11743, U.S.
Bankruptcy Court, District of Delaware (Wilmington).